CAPITAL FORMATION AND ECONOMIC GROWTH UNDER CENTRAL PLANNING AND TRANSITION: A THEORETICAL AND EMPIRICAL ANALYSIS, CA. 1920–2008

According to the consensus view, it was primarily physical capital accumulation that drove economic growth during the early years of state socialism. Growth models incorporating both human and physical capital accumulation led to the conclusion that a high physical/human capital ratio can cause a lo...

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Bibliographic Details
Published in:Acta oeconomica 2015-03, Vol.65 (1), p.27-50
Main Authors: FÖLDVÁRI, Péter, van LEEUWEN, Bas, DIDENKO, Dmitry
Format: Article
Language:English
Subjects:
Accounting
Capital accumulation
Economic growth
Growth models
Human capital
Vector-autoregressive models
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Summary:According to the consensus view, it was primarily physical capital accumulation that drove economic growth during the early years of state socialism. Growth models incorporating both human and physical capital accumulation led to the conclusion that a high physical/human capital ratio can cause a lower economic growth in the long run, hence offering an explanation for the failure of socialist economies. In this paper, we show theoretically and empirically that according to the logic of the socialist planner, it was optimal to achieve a higher physical to human capital ratio in socialist countries than in the West. Using a VAR analysis, we find empirical confirmation that within the Material Product System of national accounting, the relative dominance of investment in physical capital accumulation relative to human capital was indeed more efficient than under the system of national accounts.
ISSN:0001-6373
1588-2659
DOI:10.1556/AOecon.65.2015.1.2